A man walks past a Tim Hortons location in Shanghai on Feb. 27, 2019.STR/AFP/Getty Images
In the 15 months since Tim Hortons inaugurated its first store in China, the coffee chain has opened 50 locations, far from its target of 1,500 outlets in a country that has become the world’s most prized java market.
Now Tims Coffee House, as it’s known in the country, has partnered with Tencent, one of the world’s biggest tech companies, in hopes of speeding its expansion. Tencent will invest nearly $20-million in the Canadian coffee brand in China, Tim Hortons told Chinese media Tuesday.
The agreement creates a relationship between an icon of Canada’s retail scene and a Chinese corporate giant that operates the ubiquitous WeChat messaging app and a cellphone payments platform that has become one of the most common ways to move money in China. Tencent is also an important contributor to China’s authoritarian regime, censoring speech on WeChat.
But the company’s investment in Tims China will help to speed its expansion and improve its digital infrastructure, the company said. Tims China is a joint venture from Restaurant Brands International Inc., which owns Tim Hortons, and Cartesian Capital Group LLC.
“What is Tencent going to bring to Tim Hortons? Efficiency,” said Stuart Eunson, the managing director of Arabica Coffee Roasters, who has been in the coffee industry in China for a quarter century.
But, he added, “there’s a lot of players in the market right now that are going to be competitive.”
The coffee industry has been in the midst of global consolidation, with Coca-Cola Co. buying Costa Coffee in 2019 and Nestlé acquiring a majority stake in Blue Bottle Coffee Inc. in 2017. Costa has been expanding in mainland China, while Blue Bottle recently opened its first location in Hong Kong. Starbucks Corp., meanwhile, continues to invest heavily in China, where it hopes to have 6,000 stores by 2022.
Starbucks has itself linked with a Chinese tech giant, through a partnership with Alibaba.
China’s per-capita coffee consumption continues to lag many other countries – just five cups a year per person, according to SPR Coffee, a domestic coffee brand, compared with 140 in South Korea and 400 in the United States. But Chinese consumption has grown at some 16 per cent a year over the past decade, far faster than the global average.
That has brought furious competition to China, most notably from Luckin, a domestic coffee brand that expanded at immense speed across the country with a model that used robotic coffee-making technology and small retail outlets to deliver cut-rate brews. It had opened more than 4,500 stores when it disclosed a major accounting fraud last month, saying senior executives falsely inflated its sales by US$310-million.
Tims, meanwhile, has sought to make in-roads in China in part by signing up nearly a million members. Nearly 80 per cent of its sales now come from those members, the company told Chinese media. (Tim Hortons and Tencent declined interview requests from The Globe and Mail.)
Tencent has made several food and beverage investments in the past two years, including Indian food delivery service Swiggy and Chinese brand Heytea.
“Tencent is wise, and it’s almost certain they will include Tims in their own ecosystem,” said Zhu Danpeng, a food industry analyst. Adding Tim Hortons products allows the company to make its own digital platforms more attractive to its customers.
At the same time, the novel coronavirus pandemic has created new opportunities, even as it has caused large numbers of people to lose jobs.
“It’s the right time to expand, because as we know, many stores in China are now on the verge of going under,” Mr. Zhu said. ”Before the outbreak of the virus, Tims might have found it hard to get enough space in cities.”
There are indications, however, that Chinese Tims has struggled to build appeal outside of those who already know the Canadian brand.
“One of the obvious features of Tims coffee buyers is that many of them have experience studying, living or travelling in Canada,” said Xie Xianwu, manager of one of two Tims stores now open in the northeastern city of Dalian. The most popular items there are the double-double and an Oreo coffee donut.
What Tims possesses is a unique decor – a bright, maple leaf-heavy motif, with workers in plaid – and a lower price than Starbucks, with espresso-brewed coffee in China that is also heavier and stronger than Luckin, said Henry Chen, manager of a Tims in Zhengzhou, in Henan province.
But competition is tough. “It’s fair to say that it’s Starbucks that has helped to cultivate coffee culture in China,” Mr. Chen said. Tim Hortons, meanwhile, is “a highly national brand from Canada.” Still, that has its own advantages. “Consumers are placing more and more emphasis on the cultural attachments of a brand when they make purchases,” Mr. Chen said.
For Mary Meng, a young accountant in Shanghai, Tims was convenient, located near a company where she previously worked. She bought a coffee nearly every day, making regular visits “partly because I really love their design, the red maple leaf logo is attractive,” she said.
But since getting a new job, she has barely been back. There are no locations near her new company.
The worst part about Tims in China, she said, is “there are too few shops. Sometimes I really want to go, but can’t find a place nearby.”
With reports from Alexandra Li
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